Home Sports Oil prices are difficult to justify, but medium-term forecasts remain favorable

Oil prices are difficult to justify, but medium-term forecasts remain favorable



  • WTI prices have adjusted lower in recent days due to demand concerns
  • Despite the short-term headwind, oil maintains a bullish outlook in the medium term
  • From a technical standpoint, if critical support stays at $ 100, interest in the purchase could rise, paving the way for traffic to $ 105.00. On the other hand, a breakthrough could portend additional losses

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Crude oil prices (WTI) prices started the week on the back foot and hit them the biggest drop since late Marchdeclining by more than 6% during the day, hampered by demand problems due to blockades in China and growing speculation that the world may be approaching a recession. Tuesday sales pressure weakened at the beginning of trading, but rose again in the afternoon, WTI futures fell more than 2.5% to ~ $ 100 a barrel, as traders remain reluctant jump back to take over long positions with many unknowns still lingering.

Despite recent weakness and turbulence, oil maintains a bullish medium-term outlook because of imbalance of supply and demand in world markets. Although the current COVID-19 wave and related blockades in China may create a headwind soon and fuel instability, the situation should improve in the coming weeks as soon as mobility restrictions are lifted.

Judging by trend of declining new coronavirus infections and declining community transmission in Shanghai, the government may start easing measures to keep housing in place by the end of the month or, at the latest, in early June, if historical models predominate. Once that happens, oil imports should accelerate before the summer season of high demand, maintaining fossil fuel prices.

There is something else bull driver on the horizon: EU plan to to ban the import of Russian oil about his attack on Ukraine. Negotiations on the embargo are still ongoing amid opposition from a number of member states, such as Hungary and Bulgaria, but both countries have shown a willingness to compromise if they are granted exemptions and alternative energy sources. In any case, it is expected that an agreement on the promotion of a new package of sanctions can be reached in the second half of May. Details are being clarified, but after full implementation within six months step by step ban could displace about 3.5 million barrels of crude and petroleum products from Russia, exacerbating market shortages by the end of the year.

In terms of technical analysis, at the time of writing, WTI prices are above the trend line support around the psychological level of $ 100. If the bulls regain control of price action and cause a significant rebound, the initial resistance will appear at $ 105.00, a simple 50-day moving average followed by $ 108.00. With further gains the focus shifts to $ 111.55, a 50 percent Fibonacci adjustment in March / April. On the other hand, if oil extends the recent correction and falls below $ 100 a barrel at weekly closing prices, interest on sales could accrue, paving the way for traffic to $ 95.35 and then to $ 93.00, the April low.


The WTI oil chart is prepared using TradingView


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— Written by Diego Coleman, market strategist


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